Guide to Accounting for Variable Interest Entities
FIN 46R and other related issues
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Dear Clients and Friends: PricewaterhouseCoopers is pleased to offer this publication, which continues the exploration of FIN 46R that we began a few years ago and provides updated guidance on the complex and evolving area of consolidation accounting under U.S. GAAP. When it was issued three years ago, FIN 46R ushered in a new way of thinking about consolidations. Under FIN 46R, whether certain entities, known as “variable interest entities,” should be consolidated is based on the sharing of economic risks and rewards rather than equity ownership and voting rights, which was a significant change from past practice. From the start, FIN 46R’s numerous provisions and new terminology posed challenges for preparers, users and auditors, which prompted us to issue this publication. In it we bring together all of the relevant guidance in this area, provide decision trees to help you navigate the guidance, and offer our perspectives throughout based on our analysis of the guidance and experience applying it. Since FIN 46R was issued, the FASB has issued several staff positions to clarify it and the SEC Staff has made public statements regarding application issues that have arisen. As a result, we believe it is appropriate to refresh our original publication to incorporate these new interpretations. While this publication is intended to clarify the requirements of FIN 46R and to highlight key points that should be considered before transactions are undertaken, it...